The Value of Personal Trust

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A really good discussion about personal trust and honesty developed out of the most recent reader mailbag that I thought was worth discussing on its own. First of all, I made a pretty big mistake in my answer. I made a giant assumption that the readers called me on, and it’s worth discussing further.

On a very regular basis, I give cash gifts to people I trust who need them or could, at the very least, use them. I take this out of money that I have and just give it to people that could use it. I’ll give some cash to a relative to help that person cover their power bill. This is something that’s common and normal to me.

When I do this, I am pretty picky about who I give the cash to, but if they’re someone I trust personally, I don’t hesitate to do it. If I found out my grandmother was having difficulty keeping her house, I’d be right there with a check in hand to help her. If one of my cousins that I trust was trying to start a business and needed some seed money, a check would be in the mail in a heartbeat. I almost always do this without asking, and I don’t expect a dime back from them.

Why do I do this? I don’t need any sort of written agreement to know that if I needed something, these people I trust would be there for me. When those people are in a pinch, I will help them, no questions asked. When those people are trying to reach for a dream, I will try to boost them if I can.

To me, personal trust and personal relationships like these are more valuable than money. I can’t possibly put a cash value on knowing that if I lost my home, my family, my children, my job – everything – there are people who would take me in and care for me. I was able to make the leap to being a full time writer because of the support and trust and help given to me by family and friends. I rely on this – it’s an integral part of who I am.

Here’s another way to think about it, through the eyes of charities. I tend to not donate to charities unless I know them well. I need to either be intimately involved myself or have someone I deeply trust be involved before I’ll donate. When I do build that trust, though, I’ll write checks to those charities without even thinking. I’ll evangelize for those charities. I’ll do what I can to help them, because I trust them. I don’t worry any more about whether my check is really helping – I trust the charity, so I don’t worry about it. I don’t worry about what I’ll get out of it – I just trust that they’re doing the right thing for something I care about.

Quite often, I assume the same kinds of dynamics in other families and friendships – and I did so to my own detriment earlier. My response to a reader question about what to do with extra cash was to give it away to a trusted family member or a trusted friend, which is exactly what I would do. I’d look for someone I trusted and use that money to seed something they wanted to do, and I’d be very liberal about it.

My response, which basically just assumed much of this, said to give the cash to a trusted family member and then that family member would probably help with college. I also suggested that giving this money away – because it would provide the added kicker of helping with one’s financial aid case, might be unethical to some, but I considered it completely fair because it’s within the rules – nowhere does it outlaw giving away your money. I did not advocate sheltering money – that’s against the rules entirely.

This was met with instant derision that I was advocating truly cheating the system, and looking back on it, I can see where the outrage came from. The outrage comes from the sense that you should never trust anyone when it comes to money, and that’s a sensible and safe philosophy to live by. The only drawback is that you limit yourself in how much you can trust others, and that cuts you off from some things. Is that a good thing or a bad thing? It’s a personal call each person has to make.

A reader asked me:

Let’s turn the tables. If you randomly received a check for $10,000 in the mail from a relative with no note, what would you do with it? What do you think they would want you do to with it?

I’d probably call them up and ask them why they sent it. If they said, “It’s help for you getting started with your writing career” or something like that, I’d give a big “thank you” and put it in the bank. I can think of a lot of other reasons why I’d just happily accept the gift, and they’re mostly borne out of trust and long-term trusting relationships with people.

Honestly, I wouldn’t really question the gift very much, and this in itself is a demonstration of what I’m talking about.

Furthermore, I’m planning already to give my nieces and nephews some gifted financial help when they go to college. I have no obligation to do so. But their parents have helped me a lot during my young adult life.

Should that be reported on the FAFSA? I think it’s ridiculous to think so. There was no implication whatsoever that any help my brother or sister-in-law gave me, in the form of gifts or personal help or advice, was to be repaid in the form of some assistance to their children. If they had a windfall and mailed me a check right now without a note, I’d still not think of it as any sort of implication that I should assist their children with college.

This all translates directly to my advice to the earlier family. In essence, giving that money to Uncle Phil is just another kind of investment. It’s an investment in people, in trust, in a bond that can’t be quoted in dollars. If you give that money to Phil when he has a good use for it, you’ve probably cemented a bond with someone who will help you in countless ways throughout your life, in ways you see now and ways you don’t, in ways you can measure in dollars and cents and ways you can’t.

From my perspective, trust is about helping people you care for because you can and because you want to, not because you’re obligated to.

If this kind of trust seems alien to you, then you’re not alone. There are a lot of people out there who are guarded, and it’s usually because they’ve been bitten after trusting someone, or they’ve heard too many stories about trust falling apart. They call such trust “naive” or “foolish” – and maybe it is.

But when I go back to my hometown and spend an evening around people I trust that deeply, I realize I wouldn’t trade that sense of trust for anything in the world. It’s that valuable, if you can find it.

So what did I learn? First, I learned that assuming things about the relationships between others can usually get you into hot water. I assumed far too much about the trust in relationships in this family, and because of that, I gave advice that was probably not the best advice to give. I gave advice from my own heart, based on what I would do in that situation – if I had money that I was trying to get rid of in order to get in a better state for financial aid, the first place I’d look is my family, the people that I trust. In a family without that trust, my advice was horribly bad – it either implies an illegal financial agreement or it suggests just tossing your money into the breeze and watching it fly away. Trust makes all the difference, and I assumed too much of it.

Second, I learned that when you give money to others, the worst-case scenario is usually assumed by others. If I give some money to my uncle or my cousin, it’s reasonable to think that others are assuming I’m doing it for personal gain over the long haul, that I must be expecting to be paid back in some fashion. That’s not how I view the world, and viewing it that way takes a big stretch for me.

I’ve explained how I view trust, and how that view can skew things. How do you view trust? How deep does it go? How much value does it have for you? Have you ever been hurt by trusting too much? Have you ever been helped by relying on a trusting relationship?

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178 thoughts on “The Value of Personal Trust

  1. This is one of the many reasons I really like your blog, Trent. You are honest AND trustworthy. You obviously have integrity and a good deal of humility to be able to write this.

    My family, I think, functions a lot like yours. No one has ever screwed anyone else over, partly because we see money as just another tool to enhance our relationships. Money has always been available when needed and we will always be sure that others have the same safety net.

    My dad is a CFP and handles the investments for the entire family — his parents, siblings, in-laws, children and our spouses, and his grandchildren. We all know he does his best and we all trust his opinions and expertise. And we also know that every decision he makes, he feels the responsibility we’ve given him.

    I guess there are a lot more people in the world who don’t have the benefit of solid relationships like this, though. Your children are getting quite a gift when you pass on to them the vision of an honest and trustworthy family. Way to go!

    And thanks again for your thoughtful response.

  2. “we see money as just another tool to enhance our relationships”

    In one sentence, you nailed a big part of what I was trying to say. Kudos.

  3. There is no way in heck that I would give a significant amount of money to a relative wanting to start a business unless we first discussed and came to an agreement on what would happen if the business was successful and they were in a position to pay me back. I don’t think that’s about a lack of trust. (If I trusted the person enough, I might, for example, leave it as an informal agreement, rather than a legally binding contract.) It’s just an acknowledgement that misunderstandings about money have the power to cause tremendous resentment that can seriously harm once-strong relationships.

    If I give my brother $10K to start a business, and the business goes on to become the next Microsoft and make billions, I’m going to want my $10K back, with interest, at the very least. I don’t see any reason not to discuss this possibility beforehand. To leave such expectations unspoken just seems foolish to me.

  4. Johanna: you nailed the difference I was talking about. If I gave someone I truly trusted and valued $10K as seed money, I wouldn’t worry in the least about what they did with it. And that’s a big divide that speaks to the different reactions to the answer I gave earlier – it’s simply two different worldviews, and they’re tied up in the word “trust.”

  5. I agree, with one caveat: there are very few people in my life whom I can trust like that. Basically it’s a few family members, and 4 close friends. So yes, of course trusting relationships exist, but in my experience, they are relatively rare.

  6. A story: Two months ago, my roommate and I signed a loan agreement together. He’d ended up in severe financial straits and was in danger of having to move out of our place and back in with his emotionally abusive parents, which would’ve affected my ability to pay rent on the apartment we currently share. I agreed to use my emergency fund to carry both of us on the rent and utilities for a maximum of three months, until he could find a job, at which point he would pay me back without interest.

    I took quite a bit of flak from some people about this decision, because they claimed that I should’ve given him the money outright without expecting repayment. He was in trouble, the situation wasn’t his fault, wasn’t I his friend? But they didn’t realise that my roommate’s parents have constantly used money in an attempt to buy his affection and loyalty, right from childhood, and continue to do so to this day. Money was and is a substitute for love and respect in his family — he’s told me so in no uncertain terms. So by keeping our loan agreement on a purely business footing, with expectations of repayment but no interest charged, he doesn’t have to feel like I’m just throwing money at him as his parents did (with the implication that once again, he’s being ‘paid off’ by someone else).

    A few weeks ago, my roommate found a job that he seems to enjoy and that pays more than mine does. He’s far happier and better off now than he was a few months ago, and he’s written me a cheque for a significant portion of the loan that’ll be cashed when his first paycheque comes through in a week’s time. In this case, a loan was a better decision than an outright gift, for both of us.

    The moral? As I see it, the psychological value of money vs trust always depends on the situation.

  7. Part of the confusion was that the reader who sent in the question seemed to be asking how she could both hang onto the money and maximize her financial aid. Yes, she literally asked what she should do with the money, but the intent was to ask for the best way to shelter that money for her children’s college costs. So, when you mentioned Uncle Phil, commenters assumed that you were using him as an unusual and possibly illegal shelter.

    I grew up thousands of miles away from all my extended family. I have no reason to trust any of them more than I would trust anyone I sort of know. There’s no reason that someone who happens to share 1/8 or 1/4 of my genetic material (my cousins or uncles) is intrinsically more deserving of my charity than a complete stranger. They aren’t deserving of less charity, either, but while I’d volunteer my time and knowledge to help complete strangers, I wouldn’t volunteer my money.

  8. Trent, I was one of the first commenters on the other post and I have to say I am very disappointed in how the discussion has gone throughout the day.

    First of all, your rewrite of your original answer to the financial aid question was vastly different than the original post. I think you should have left up what you wrote at first for the sake of comparison for later readers to see what all the fuss was about. If I remember correctly, the first answer you wrote said that you were giving the money to Uncle Phil, trusting that when the kids got to college he would kick in an equal amount of money each year to the kids once they were in college.

    I think this while “trust” tangent you went on was birthed out of people reading your answer for what it was the first time. You are giving Uncle Phil the money with the solid expectation that he would equally give back the money to the kids once the government could no longer count it against the kids financial aid.

    I also think you misunderstand the purpose of financial aid. I think of it like gifts are in any other sense. If someone gives you a gift over a certain amount you pay taxes on it (I do believe). Why should financial aid be any different? Why should people with more money for college not be expected to use what they have? Going to college is not a right. The merit-based part of college comes through admissions. If you can get in, you’ve shown you earned it. It’s up to you, then, to pay for it. The government has been “kind” enough to offer loans and grants to help those who earned admissions to college afford that.

    Financial aid is not an indicator of how much a child deserves to go to college, which is how it seems you are interpreting it. It is an indicator of how much financial contribution that student and his/her family can make. That is fine.

    In my eyes, you come out of this discussion very dishonest because of how you changed your post after people got upset about it (including me) and then twisted the discussion into saying that it was you giving the money (hypothetically) out of the goodness of your heart.

  9. I see what you mean about the issue of trust in a general sense. I’m not financially capable of gifting money to people like that, and I don’t have many people I trust that completely, but I would love to be able to do that sort of thing. It’s a great feeling to know that you truly helped someone, whether it’s a friend, family member, or charity.

    The part of this discussion that I don’t understand, however, is why the college money would be given away in the case that started this discussion. What is the point of giving away money to maximize financial aid? If you have the money to pay for it, why would you give it away in order to take on loans? Giving the money to the uncle doesn’t seem to serve any particular purpose; the reader’s question didn’t give any indication that someone in her family needed the money more than her children. The uncle will have a bunch of money he doesn’t need, the kids will have loans (as part of or all of their financial aid package), the parents risk being suspected of fraud, and the grandparents won’t have their wishes respected. Everyone ends up in a worse situation than they would have been if the money had just been used to pay for college. The advice you gave just doesn’t make sense for that person’s situation.

  10. “Part of the confusion was that the reader who sent in the question seemed to be asking how she could both hang onto the money and maximize her financial aid. Yes, she literally asked what she should do with the money, but the intent was to ask for the best way to shelter that money for her children’s college costs. So, when you mentioned Uncle Phil, commenters assumed that you were using him as an unusual and possibly illegal shelter.”

    I understand this now, but it didn’t occur to me when I was writing my original answer. I wrote what I would do, trying to put myself in their shoes and, as I said above, it made for some bad advice. As I said above, “In a family without that trust, my advice was horribly bad – it either implies an illegal financial agreement or it suggests just tossing your money into the breeze and watching it fly away. Trust makes all the difference, and I assumed too much of it.”

  11. This is exactly why Trent has the best personal finance blog. Make a mistake, own up to it. It also speaks to the loyalty of your readers. They call you out on the mistake and continue to read the blog.

    SG, that was a great story.

    “But they didn’t realise that my roommate’s parents have constantly used money in an attempt to buy his affection and loyalty, right from childhood, and continue to do so to this day.”

    That was powerful, and sums up a few people close to me.

  12. Trent, I may have just read the responses differently but at least I know for me my reaction to your suggestion about the money was not at all about the trust issue. I can absolutely understand having people I trust implicitly – with money and otherwise. I still don’t think that trusting Uncle Phil means that what you were suggesting was ethical by MY standards. Not only that but I don’t think the person you gave this advice to would be teaching their children any good financial lessons with this approach either.

    And again please explain how this is NOT sheltering the money just because there is not a signed agreement? As you are so specifically arguing, you are giving this money to a person you trust will “do the right thing” and give it back. And you mention that even without a signed agreement there would be an expectation because you say that Uncle Phil would be the recipient of “family scorn.”

    Also while trust is a great thing for kids to learn I also believe that financial responsibility is just as important. This seems like you are teaching the kids to depend on others to take care of them. While I think it’s good to trust others, I know I don’t want to raise my kids to believe that others will be the ones that will handle the finances so my kids don’t need to learn financial responsibility.

    So my problem is not at all about trust but is about what ethics I personally believe in AND what life lessons I want my kids to learn. Relying on others is different to me than trusting others. It’s good to have family and friends to trust. It’s not as good to just expect others to take care of you.

    Anyway, for me this was the first piece of advice that I personally did not like at all – ethically and financially. Plus I don’t think you are understanding most of the issue that the readers have. However I can understand that we have different levels of ethics. I’ll just make sure to pay attention a bit more to advice you write given this difference.

  13. When I read their question, I read that it was “not a fortune,” meaning not much at all and likely less than $10K; that it was a gift from relatives, which implied a close family (I thought of my own); and that they couldn’t pay for college, which meant that they were likely relatively poor.

    This sounds a lot like my boat when I was starting to look at college, so I pretty quickly snapped myself into their place. I got through college because of family support, above all else – not just financial, but emotional and mental and all sorts of things. So my advice – well-intentioned but perhaps wrong – was to shore up that family support by gifting it away within the family.

    That’s why I wrote this article – the nexus of that choice is about the value of personal trust. If you trust those people to be there for you, then the best investment you could make with that money is in them. If you truly believe you’re all tied together via trusting relationships, then money’s just a way to cement those relationships and help everyone to float. That’s the way I see the world, anyway.

    Not only that, by gifting the money, they appear much better on the financial aid forms, which was the one thing that was mentioned as criteria. You appear as having fewer assets, but instead your assets are in the form of intangibles – strong, trusting relationships that will help you get through things.

    Sure, there are a lot of options for this family, but I threw out one that I felt in my gut and in my heart, and that’s why. Invest in the people you truly trust and you’ll never regret it.

  14. “As I said above, “In a family without that trust, my advice was horribly bad – it either implies an illegal financial agreement or it suggests just tossing your money into the breeze and watching it fly away. Trust makes all the difference, and I assumed too much of it.””

    Maybe I’m just thick headed, or missing the obvious…but how does this change at all the advice that was given? You are still giving money away with the trust that when financial crunch time comes for your kids college that the “favor” will be repaid.

    “This is exactly why Trent has the best personal finance blog. Make a mistake, own up to it. It also speaks to the loyalty of your readers. They call you out on the mistake and continue to read the blog.”

    I think changing the content of the post is a little shady myself. It doesn’t let future readers see the original content. Retractions a different beast than on the fly modifications.

  15. A self-employed person I know was asked to consider buying disability insurance. His response was that his disability insurance policy was made up of all the favors he’s ever done for his friends and all the checks he has written to his church. It seemed like a solid response when you first think about it, but he has three young children, so he bought the insurance. The point being, one might trust in others to “give back”, but should a person expect that trust relationship to protect one’s WHOLE FAMILY? Those are some high stakes.

  16. Trent,
    Sorry I love your blog but I am not buying this one. I think you got caught giving an unethical answer and rather than owning it you trying to make us believe in this whole trust thing. It just doesn’t fly. Let’s move on and back to what you are good at – motivating all of us to do better with our personal finances. Let’s just acknowledge that that was some bad advice.

  17. I can’t imagine you didn’t know what the question meant when you answered it, and it was completely implied in your original post that you knew exactly what you were talking about and that it was basically a backdoor way to shelter the money, or at least to shelter an amount that could be used for college outside the eyes of FAFSA, if you picked a “trusted relative”. The fact that this whole thing has now morphed into this bizarre dialogue about personal and family trust and doing the right thing and families helping family members through college because that is what you do is a tad bit ridiculous – it has so little to do with the original question that I’m kind of boggled that it’s gone on this long. Bottom line for me, if you’re NOT trying to shelter money from FAFSA in this scenario, you’re incredibly naive, because odds are you’ll never get back from Uncle Phil what you gave him, or the equivalent of what you could have earned in a savings ccount and if you ARE trying to shelter the money so you can get a handout from the government, because you don’t want to spend your money on a college education that you feel you somehow deserve, then that’s plain WRONG.

    As an aside, I really wish you wouldn’t completely erase content on this blog when you realize that something you said was completely backward – it’s like that post about trimming the fat where it originally advocating dumping family pets to new homes to gain a little more wiggle room in the budget each month that then just….magically disappeared in the original post. I agree with Jon – retractions are completely different than just deleting or altering the text that caused such a response.

  18. “If I gave someone I truly trusted and valued $10K as seed money, I wouldn’t worry in the least about what they did with it.”

    Well, $10K is a lot of money. It’s a significant fraction of my net worth at this point, and I doubt that your net worth is that much higher than mine. Giving a $10K no-strings-attached gift (for any reason) wouldn’t bankrupt me, but it would set me way back in my progress toward my own financial goals – so I think it’s safe to say that a $10K gift is not something I can reasonably afford. And giving gifts that you can’t reasonably afford, as a way of “enhancing your relationships,” does not strike me as healthy financial behavior.

    If I had a close relative fall on such hard times that they would be without food or shelter unless I gave them some money, then I would help them out. But (1) I would help them out with much less than $10K, and (2) it would be accompanied by a frank talk about money management in which I do whatever I can to see that they don’t need my help again in the future. I have a close friend whose mother and sister treat him like an ATM, and he resents it very much but doesn’t do anything about it. I would not want that to happen to me.

    But seed money for a business is different. For one, nobody needs to start a business. For another, businesses succeed and make money. (And if I did not think that my relative’s business would probably succeed and make money, there is no way that I would give him seed money, period.) So if I help my relative out with seed money, there’s a decent chance that he’ll later be in a good position to return the favor. I think it just makes sense to discuss beforehand, not after the fact, what an appropriate “thank you” might be if my seed money allowed my relative to become the next Bill Gates. And I don’t see what the value is in *not* having that discussion.

  19. Trent, I’ve helped family members in the past as well, but never with the assumption they would (or could) help me later. In my case, my extended family is horribly bad with money, so I could never count on reciprocating assistance down the road. I give with zero strings attached, and I consider the expectation of future help a very small string.

    I would only trust two or three people with a plan similar to the one you spelled out, but I suspect that is probably the average number most would entrust with such a large sum of money. Unfortunately, without trust and a deep, respectful relationship, most people will act on their own whims and fritter away the money. Having said all that, I completely agree with your line in the comments, “Invest in the people you truly trust and you’ll never regret it.” Well said.

  20. Jon: “I think changing the content of the post is a little shady myself. It doesn’t let future readers see the original content. Retractions a different beast than on the fly modifications.”

    Uhm… the original statement is still there. I even identify it as such. I had merely added two paragraphs to clarify it. The only problem I can see in the original statement is people believing the term “gift” is some code word for an under-the-table agreement, and so I clarified to make it clear that I am talking about an actual GIFT, not an agreement.

  21. But, Trent in the comments you talk about “playing within the rules” and how the financial aid rules allow you to do what you’re proposing…..if this is just a personal trust and family issue and a gift and everything…why would we CARE what the FAFSA folks thought of your gift? why would we be thinking about teaching your kids to use the system to find competitive advantages for themselves within that system? Why is any of the advice in those comments relevant if this is just about doing something nice for a family member?

    I feel like this entire argument/post/advice about fincial aid was just really poorly thought out.

  22. OK, Trent, so you’ve clarified your post to say that you’d expect intangible rewards for the children from this gift of money. Everybody, that means there’s no fraud, because the FAFSA can’t measure or value your intangible assets.

    I’d still have large issues with expecting intangible rewards, like goodwill and emotional support, for a gift of money. Emotions are fickle and irrational, especially when it comes to human relationships, and putting a price tag on them is really difficult. You can’t tell your uncle, “I’d like 3k worth of emotional support and 2k of unconditional love.” I’d rather repay goods with money and caring with caring.

    (Not that this dichotomy is always clean. But I prefer to keep it as clean as possible.)

  23. “Uhm… the original statement is still there. I even identify it as such”

    Uhm, now it is. For a while all it said is that the original response had been changed due to a misunderstanding by the users.

  24. “But, Trent in the comments you talk about “playing within the rules” and how the financial aid rules allow you to do what you’re proposing…..if this is just a personal trust and family issue and a gift and everything … why would we CARE what the FAFSA folks thought of your gift?”

    Because the FAFSA only looks at the numbers, nothing else. If you’re looking at a gift versus a loan, both appear to the FAFSA as being a reduction in assets and will possibly draw questions. I’m advocating doing everything ethically and honestly – if you do things right, you’re not hiding or lying about anything.

  25. I think we all know that the answer to the college question was never about “trust”. It was about fraud. This “Value of Personal Trust” piece seems to me like a complete rationalization of an answer you know, and we know, where 100% wrong. This has nothing to do with trust; it’s about fraud.

  26. “Uhm, now it is. For a while all it said is that the original response had been changed due to a misunderstanding by the users.”

    At first, I just rewrote it because my original understanding of all of this was that people weren’t understanding the word “gift.” I put it back as soon as I realized it was more than just a clarification issue for some people.

    I try very hard to run this blog ethically and honestly. This discussion, I thought, was evidence of that. Why do you then feel the need to insinuate that I’m trying to be dishonest?

  27. Ok, Trent, I’m trying to hang with you here because I have been a reader for a long time and you have responded to my emails and questions, but this whole debacle is frustrating me.

    Here is what I’d like to know:

    Why shouldn’t the children, or any people with money sitting around, be expected to use that money for college if that’s the path they choose to take?

    You seem to be arguing that it’s unfair to expect them to use that money and instead they should be given grants as though they didn’t have it. I don’t understand your reasoning there.

  28. You are proposing that the best way to use this money for your child’s education is to give it away to someone else to use for totally unrelated purposes. I am finding it hard to wrap my brain around how you could write that and it not even occur to you that that might be a controversial/misunderstandable position.

  29. I like how Trent starts by saying, “I was wrong to post that,” but by the end it’s, “I was wrong to think your families are as generous as mine.”

  30. I don’t think any mistake was owned up to. I think we were just told we misunderstood you, because your trusted family/friends has such a vastly different attitude towards money then the rest of us. And I’m also not quite buying it.

    In order to get the most out of it, they should just save it like a normal person, and use it all up the first year or so. Then they will “appear better” on forms the rest of the years. I think that is advice that would sit more soundly.

    If i want to have the most money for college, giving any money I do get away seems quite counterproductive, unless there are hidden expectations.

  31. This has gotten completely out of control.

    Let’s summarize:

    1) If Trent GIFTS the money to Uncle Jim, it is, legally, no longer his. There is no agreement, no contract, no nothing. He is TRUSTING that Jim will GIFT the money back when Trent’s kid goes to college. If Uncle Jim spends it, tough luck. That is why he emphasized TRUST.

    2) This is not illegal. The money legally now belongs to Uncle Jim. Jim can do what he pleases. If he wants to GIFT it back to Trent’s Kid, then he can.

    3) This is not fraud. You’re a fool to think so. Trent gave his money away, and Uncle Jim, out of the kindness of his heart, in 18 years gives it to Trent’s kid.

    4) The money will be gifted back to Trent’s kid from Uncle Jim when he goes off to college. Only if Uncle Jim wants to.

    5) None of these transactions need to be reported on FAFSA (it’s not your money afterall).

    6) Trust is key. The money absolutely has to stay out of Trent or his Kids name.

    7) There are millions of people who apply for financial aid every term and that number is growing. There is only a limited amount of money. Even the very rich may not provide money for their children to go to school. Those “rich” kids deserve that aid as much as any “poor” kid. This and the last post are just one way to get some additional money. It is a very risky way to get additional money.

    Like it or not, this is a smart, LEGAL way to get some additional funds for college.

  32. I think I understand where Trent was coming from with this advice, but to me the meaning of “trust” and the meaning of “expectation” are being confused with each other.

    If I am willing and able to gift my sister with $10,000 of my savings, no strings attached, I fully trust her to do what is best and responsible with that money. I also trust that when my kids(s) are college-aged, my sister will do whatever she is able to help them.

    However suppose in the next 15 years my sister loses her job and needs that $10,000 no-strings money to live on? And in 15 years she isn’t able to help pay for my kids’ college? Did I expect that she’d have preserved that $10,000 no-strings money, not matter what, to pay for my kids’ college?

    If she hasn’t preserved that money, it has nothing to do with her being untrustworthy. It has to do with the expectations I established for my $10,000 gift to her.

    And ultimately, haven’t I as a parent failed my child by essentially losing $10,000 of her college fund in order to try to “work the system”?

  33. At this point, I’m just going to let the comments go, rather than responding to anything else.

    It’s very clear that my second post here was spot-on. Personal trust plays a massive role in how you interpret personal finance issues, both for me and for you. These comments are witness to that fact.

    I’ll just quote one thing from my article above: “my advice was horribly bad.” I admitted to giving bad advice – if that’s not enough for you, I’m not sure what is.

  34. Mixing money and friendships/relationships is one of the most dangerous things to do. This runs the gambit from parents to siblings to friends to significant others. I have been a landlord for friends for the past couple years and it is one of the most stressful things to have to deal with. At least with that kind of situation there is an obvious expectation: you will pay your rent. With lending money it becomes a lot more kloogy on expectations unless you are VERY specific (which I agree with) and even then it might be hard.

    With parents/siblings loaning money is difficult because there are allegiance expectations taken to another level above friendship.

    With spouses, well, the number one thing fought about in marriages in America is money. Enough said.

    Just in general money and relationships is a difficult thing.

  35. That is frustrating Trent. If your article was spot on, then while their may be a few of us whiners, there would not be such an overwhelming negative reaction. Sure, I understand not responding to everything but maybe let the comments flow and come back with your thoughts. Unless you get a wave of positive comments (you may, who knows)… either we are all misguided, or you are.

    Your ideas of personal trust might be spot on, but the idea that personal trust related to your ealier advice certainly is not.

  36. wow, i didn’t realize that you had so many self-righteous readers! can i have a soap box, or are they all being used right now? good luck putting out this fire.

  37. “wow, i didn’t realize that you had so many self-righteous readers! can i have a soap box, or are they all being used right now? good luck putting out this fire.”

    I completely agree.

  38. I don’t think people are necessarily being self righteous…its just a very touchy subject. 99% of people are just trying to do the right thing but also not damage friendships/relationships.

  39. “I try very hard to run this blog ethically and honestly. This discussion, I thought, was evidence of that. Why do you then feel the need to insinuate that I’m trying to be dishonest?”

    Because that’s how it looked to me. It’s very hard to comment on an article when the content keeps changing. From my view, a published article (regardless of medium) should NEVER be altered for any reason. It can be clarified clearly at beginning or end but should never be altered in the middle.

  40. StackingPennies: All I’m going to say is re-read tom’s comment, #31. He explains really well why this is really about trust.

  41. What about all the students who really need the financial aid? Who don’t have their relatives “gifting” them money on top of their assistance?

    I don’t understand how this isn’t scamming the system. Sure, the system has its loopholes, but explain your scheme to the kids who DON’T get financial aid but who really need it and see how they feel about it.

  42. “Because that’s how it looked to me. It’s very hard to comment on an article when the content keeps changing. From my view, a published article (regardless of medium) should NEVER be altered for any reason. It can be clarified clearly at beginning or end but should never be altered in the middle.”

    See, that’s a point of contention among personal finance bloggers. J.D. over at Get Rich Slowly edits his articles if need be after posting them if the commenters point something out. I generally agree with you about leaving articles untouched, but J.D. made a very excellent case for his position. This can be debated all day long – trust me, it has been.

    The point is that no blog or blogger can be 100% right, and no blog or blogger can please everyone with a response. I’m going to be wrong sometimes – that’s life. I cannot punch out this much writing and nail everything 100% – that’s not the point of a blog. The question is how I handle it. I usually try to start some discussion with a mistake, because if I messed up, there’s probably something that can be learned from it.

  43. “Like it or not, this is a smart, LEGAL way to get some additional funds for college.”

    Most comments do not dispute the legality of the decision. Apparently there is a breakdown here between the understanding of what is legal and what is ethical. Ethics live outside the realm of the law.

  44. Trent is right, he has had to beat that dead horse a few too many times: its been a debate even between PF bloggers in private forums (too)many times.

  45. “explain your scheme to the kids who DON’T get financial aid but who really need it and see how they feel about it.”

    This is *still* assuming I’m advocating a scam. I’m not. Again, read tom’s comment – #31.

  46. No its not confusion or lack of trust that make people believe that your idea is unethical and illegal.

    Your scheme was to gift money to a relative with the expectation that they would in turn gift it back later. Thats sheltering money with the intention to hide it from the federal government. Thats the unethical and illegal part.

    Its clear your suggestion is built on the idea that the uncle would return the money in kind for college expenses. This is a tit for tat arrangement. If you are not really expecting him to return the money then why did you discuss the ‘risk’ of him not doing so and what would be the point of giving away your money in order to plan for college expenses?!?

    People are not saying they think your scheme is unethical cause they don’t trust people. Theya re saying its unethical because it is unethical. Trust of relatives would be required for your scheme to work at all. If people didn’t trust their relatives and looked at your scheme they would simply say it would fail cause your relative would take the money and laugh, not due to it being unethical.

    Jim

  47. “The question is how I handle it. I usually try to start some discussion with a mistake, because if I messed up, there’s probably something that can be learned from it.”

    But that is just what is still be argued here. You turned the discussion off of ethics and onto trust. Yes, you admitted your advice was wrong, but only under certain conditions.

  48. Are we trusting the uncle to hold the money, or just to do something responsible? Are you expecting/hoping to get the money back, or “trusting” you’ll get the money back, or neither? If neither, how does this help the said student/child. I you are hoping for it back, I don’t know if it is illegal, but it does seem like it is at least sketchy.

    I read Tom’s comment and it seems we are hoping to get the same money back as a gift. Hoping, but obivously with no legal requirement. Is this what you meant, or am I wrong?

    I’m honestly a little confused.

  49. “Your scheme was to gift money to a relative with the expectation that they would in turn gift it back later.”

    No, it’s not. There is zero assumption of getting anything paid back. You’re adding that assumption yourself, in your own mind, and then believing that what I’m saying is unethical. Read tom’s comment again. #31. The relative has 100% freedom to do whatever he or she wants.

    “You turned the discussion off of ethics and onto trust. Yes, you admitted your advice was wrong, but only under certain conditions.”

    They’re the same thing. Trust is ethics. This entire discussion is about trust – some people trust others, others don’t.

  50. “Are we trusting the uncle to hold the money, or just to do something responsible?”

    I’m trusting the uncle to do something responsible – that’s the entire point of this article and of talking about trust instead of arranging a deal. Returning the money later is one of an infinite number of potential responsible acts. Trust is the key part here – do I trust the uncle’s judgment?

  51. “Trent, you should write less if volume’s the reason you make mistakes like this.”

    I could write one post a week and still make mistakes. With thirteen posts a week, there are just thirteen times as many opportunities for a mistake to appear.

    Besides, as a whole I don’t feel this was a mistake. I think this was a good opportunity to illustrate the importance of trust.

  52. I don’t think what Trent suggested is unethical or a scam. I just think its bad advice, like he said. To me, it purports that trust can trump reality.

    If Uncle Jim loses his job or has a medical emergency, your monetary gift to him (ie your kid’s college savings) may well be out the window, because of necessity and not because of any trust issues.

    Bottom line- In my opinion, what he proposed isn’t a way to save or prepare financially for college expenses.

  53. “Well, please let me know the next time you say the wrong thing to teach us a lesson.”

    I’m guessing the phrase “turn lemons into lemonade” is a new one to you?

  54. Man, what a frustrating couple of threads!

    I like your blog, Trent. I like seeing new stuff from you pop up in my reader. I’m going to stick around and see where things go from here.

    But, golly, did you ever dig yourself a hole, here. A lot of your readers, including myself, think your answer about maximizing financial aid eligibility was wrong–*but not because of the part about trusting Uncle Phil.*

    My own feeling is that it doesn’t pass the “dinner table” test. Personally, I wouldn’t want to explain this to my kid over dinner. I would rather explain that our hard work and good fortune have given us X amount of dollars, and we’ll be happy to put that on the FAFSA. The reason we’ll do so is that it’s a true statement about our real resources, and that people unfortunate enough to lack those resources won’t be able to play games. It’s a step toward leveling the playing field.

    Perhaps my perspective is warped, though. I’ve worked for years with low-income, first-generation students. A 17-year-old in a bad school*, raised by an underemployed single parent, deserves the same FA opportunities as any hotshot from your stellar district.

    *They exist in Iowa, too. I’ve lived here all my life, and I’ve seen plenty first-hand.

  55. “I’m trusting the uncle to do something responsible – that’s the entire point of this article and of talking about trust instead of arranging a deal. Returning the money later is one of an infinite number of potential responsible acts. Trust is the key part here – do I trust the uncle’s judgment?”
    Got it. If that is the purpose, then that doesn’t seem like the best use of money for a future college student… But if that is what you would do… then that’s your call I suppose. You admit for many people the advice was bad, so… Whatever.

    To me, Tom’s comment implies that while the uncle is free to do what he wants, you trust/hope he gifts it back. The only logical reason I see to gift it to a trusted relative was with the purpose to shelter it from my child’s name. (Unless they were in need and that was the true best use of the money)

  56. “If Uncle Jim loses his job or has a medical emergency, your monetary gift to him (ie your kid’s college savings) may well be out the window, because of necessity and not because of any trust issues.”

    On the other hand, if Uncle Jim uses the money as seed money for a business, Uncle Jim might take young Timmy under his wing, train him in the business, and then hand the business over someday.

    Or Uncle Jim might not do much with the money, but when college comes around, young Timmy gets to live in Uncle Jim’s basement rent-free for four years.

    Or infinite other things. The point is, do you have a valuable personal trust with Uncle Jim? If you do, then giving him the money might make a whole lot of sense.

  57. “There is zero assumption of getting anything paid back.”

    I beg to differ. Your first post says:

    “You’re choosing to believe that some day Uncle Phil will choose to help you with college.”

    That means the goal, assumption, expectation, plan here is that Uncle Phil will pay you money back.

    You acknowledge your plan may not work. Yes theres risk your plan will fail if Phil doesn’t cooperate or if he dies or whatever. But that doesn’t mean your plan isn’t to have Phil pay back the money. If the plan is to give money to Phil and have Phil pay it back later then that is unethical and illegal mechanism to hide assets.

    Jim

  58. No matter how much I trust Uncle Jim, my trust won’t pay his medical bills. And my responsibility as a parent is for my child first. Therefore, I save money for my child’s college fund instead of for Uncle Jim’s medical bills.

  59. I don’t think I would want to leave my child’s future in the hands of anyone else. It is my obligation to provide for them, not my uncle’s, not my mother’s. If I give a gift to my uncle, in my mind that means there are no strings attached whatsoever. If I am hoping that he will one day give my child a similar gift, I think I am doing a disservice to my child and their own financial future by counting on that money – heck, I think I would be doing my child a disservice by gifting away their college money in the first place…

  60. “Unless they were in need and that was the true best use of the money”

    That’s one good reason. What if Uncle Jim intended to use it as seed money for a business? It’s still a personal gift to help Jim out. I can think of millions of scenarios where giving that money over to Uncle Jim – no strings attached – is the best move. Remember, as April said in the very first comment here, “we see money as just another tool to enhance our relationships.”

  61. PS – thanks for responding to comments further, i appreicate it. you also are getting me to click your site several times today. You probably made 30 cents off me today alone! ;)

    Tom’s comment does state that he trusts that the money will be gifted back (but trust, no guaruntee). I just can’t think of millions of reasons to invest in uncle jim as seed money rather than a savings account to help my theoritical student.

  62. By this logic, any money we don’t need right at the moment should be given away, with the trust that someone will help us out in a bigger way when we do need it – maybe with money, maybe with something else.

    Face it, the original suggestion was a creative way to get around having to be honest on the FAFSA. The only reason “trust” was mentioned in the original post was because he was implying that the uncle would be expected to return the money.

    Not illegal, but definitely unethical.

  63. “That means the goal, assumption, expectation, plan here is that Uncle Phil will pay you money back.”

    Perhaps, but not necessarily in the form of money, just in the form of anything you might expect from someone you trust.

    Phil could help with college in a lot of ways: financial support, housing, emotional support, help with schoolwork, an internship, a key call during a job interview process, a key call during the application process, and so on. If I have a trusting relationship with Phil and I say, “I need your help with X” and Phil can do it, he probably will, whether it be money or anything else.

  64. Umm, no. Sorry, Trent.

    1. The original part of the article in question is still missing some parts. You put back the beginning, but not all of it.

    2. The original part of the article in its entirety made a much stronger point that you would fully expect the money to be repaid by Uncle Phil at college time. That, to me, is where you were trying to go with all this special family trust stuff, that you don’t need a formal arrangement (which would be illegal if not reported on the FAFSA) because you can trust Uncle Phil with it.

    3. If not, why invest even $10k now in Uncle Phil’s future intangible emotional support or free room or what? If you didn’t give Uncle Phil the money now (since you didn’t imply he wants or even needs it), wouldn’t you still expect your extra-special extra-trusting uncle to provide emotional support or a free room for your kid at college time?

    4. Let’s assume Uncle Phil does pay the $10k back at college time. How much interest could you have earned on that original $10k in the meantime if you’d kept it in a safe investment vehicle– for example an ING-type account earning 4%– wouldn’t your original $10k be $15k in 10 years, $20k in 18 years? Uncle Phil, in comparison, pays back whatever he feels like– let’s say its the original $10k. Now add in whatever grants you get from the government– loans are still money you have to pay back, even if they have favorable interest rates. That means you need to be sure to make $5 – $10k in free grants for this to be the “better deal.”

    5. The risks inherent in the above– that Uncle Phil won’t pay the money back, that your kid won’t get the free grants for whatever reason (i.e. your income improves drastically between now and then) seem very high compared to the relatively safe option of investing in a high-yield savings account or CD and just taking the hit at FAFSA time.

    6. I think you are being disingenuous, probably with yourself and not just us, about why your advice was wrong. I think you could do to take a deep breath, back away, and try to feel less defenseless. This post feels like something you scraped together to rationalize your earlier advice. It doesn’t ring true.

  65. Hi Trent, just wanted to say I really enjoy your blog for the content as well as the lively discussions. I think it’s important for people to discuss things as personal as their views on money, family, friends and trust and that it is rarely done. Thanks for letting everyone hash this out so we can all see the different opinions.

  66. “I just can’t think of millions of reasons to invest in uncle jim as seed money rather than a savings account to help my theoritical student.”

    It depends on Jim. Perhaps he uses that money to buy a new tractor for his farm that he needs in a pinch, and then pays the family back by giving them tons of food over the next few years and then gives some of the land to the student when Jim retires?

    I can sit here and name all sorts of scenarios, but the point here is trust. Do you truly trust your uncle?

    People commenting are falling into two camps – they understand exactly what I’m saying, or they can’t understand it and never will. Because, frankly, I’m just repeating the same idea over and over.

  67. “People commenting are falling into two camps – they understand exactly what I’m saying, or they can’t understand it and never will. Because, frankly, I’m just repeating the same idea over and over.”

    Wrong. There are at least three camps. I understand what you are saying, but I don’t agree.

  68. Trent said:

    “explain your scheme to the kids who DON’T get financial aid but who really need it and see how they feel about it.”

    This is *still* assuming I’m advocating a scam. I’m not. Again, read tom’s comment – #31.

    I DID read comment #31. What I’m saying is, if your plan isn’t a scam, then you should feel perfectly comfortable telling the kids who don’t get financial aid because there’s no money left in the system about it. Would you go up to a kid who can’t afford college and feel no qualms that your kid got the aid that he otherwise wouldn’t have had access to if the money hadn’t been sheltered by Uncle Phil? Do you think that kid would be alright with your plan, or would he feel like you had scammed him out of his aid?

    This is what makes the plan a scam. It is socially irresponsible.

  69. “The original part of the article in question is still missing some parts. You put back the beginning, but not all of it.”

    It is 100% all there. I just inserted my clarification in the middle.

    Furthermore, this is advice that isn’t for everyone, margo. If you really trust Uncle Phil, the advice is completely sensible – but if you don’t, you’re asking the very questions that you ask.

    What is trust? We’re seeing a lot of different definitions at work here. And, frankly, that’s great. I would hope anyone reading this would see the different definitions at work and figure out which one matches their own.

  70. @margo

    “1. The original part of the article in question is still missing some parts. You put back the beginning, but not all of it.”

    Thank you! I’m glad someone else has finally caught that. The article has since been changed even from what it was in the beginning, even with the clarifications. This to me is blatant dishonesty. The “original” article now has a completely different meaning than it originally did.

  71. “It is 100% all there. I just inserted my clarification in the middle.”

    Really? Where’s the original reference to Uncle Phil then?

  72. “What I’m saying is, if your plan isn’t a scam, then you should feel perfectly comfortable telling the kids who don’t get financial aid because there’s no money left in the system about it.”

    It’s not a scam, Stephanie. There is no scam if you give the money to someone, no questions asked, no agreements, no strings. That’s charity, not a scam.

    You are choosing, yourself, to mentally add such an agreement to the equation. I’m saying there’s truly nothing there. Phil can do whatever he pleases.

    Remember what April said in the first comment here: “we see money as just another tool to enhance our relationships.” If that seems foolish to you, then there’s just a gap of understanding that I can’t hope to bridge, because it requires something within you that isn’t there.

  73. A minor aside to all of this:

    If assets are held in the minor’s name, can the parents, assuming they are the custodians on the account, actually just give the money away? Don’t custodians have some sort of fiduciary duty to handle the money is a responsible way? If the child’s relationship with the parents soured, couldn’t the child sue the parents for just giving away his or her money?

    My answer to the original question would be to look into the rules about whether FAFSA counts retirement assets if you were to put some of the money into an IRA, or whether there’s some type of trust that might preserve the assets for a later date.

    Or you could just use the money to pay for college, which was the intent of the gift to the kids all along.

  74. “Thank you! I’m glad someone else has finally caught that. The article has since been changed even from what it was in the beginning, even with the clarifications. This to me is blatant dishonesty. The “original” article now has a completely different meaning than it originally did.”

    I left the original material there and added an explanation. What else should I have done there?

    Option 1: Leave potentially misleading advice to confuse later readers.

    Option 2: Delete the original advice and write something wholly new.

    Option 3: Leave the original advice and add a clarification.

    I chose option 3, because it’s the only one fair to current readers and to future ones. Any other choice is unfair to someone.

  75. “Really? Where’s the original reference to Uncle Phil then?”

    Uncle Phil is someone I made up in the comments – he wasn’t in the original article. At various points, he’s been Uncle Joe and the like.

  76. I’ve spent an entire day discussing this issue with readers – that’s enough. This topic has officially been beat to death and we’re just going in circles at this point. I hope that everyone learned something from this – I know I did.

  77. This is very bad advice and just not financially responsible, regardless of trust!

    First of all I agree with margo’s comment (#65) regarding interest on the money.

    Second, I have seen so many people have situations come up where people DO HAVE PEOPLE THEY TRUST, but unforseen situations come up in the future. Besides having a very trustworthy person potentially lose their job, other situations can change such as the trusted person dying and the the beneficiaries not aware of, or care, about the $10K. Also other situations change where maybe the very trustworthy person gets married and their new spouse might not be as financially trustworthy.

    People have to realize that it makes absoulutely no financial sense to give money with the expectation of there being any chance of getting it back, that is not wise, REGARDLESS of if people have very trustworthy people in their lives, which I do have a few. For me personally I would help out friends and family in situations when they are in need – any money given would be given without the expectation of getting it back though since there are huge risks, out of the control of a trustworthy person.

  78. “People have to realize that it makes absoulutely no financial sense to give money with the expectation of there being any chance of getting it back, that is not wise”

    In other words, you’re opposed to charities?

    No, not at all. In fact for my church we regularly donate a consistent amount weekly. I make the donation because it is important to my wife and I and our christian values. I may have misread but your article seemed to imply that money given to someone else would be coming back.

  79. It seems to me everyone else keeps putting in the words “sheltered with Uncle Phil”. Trent never said anything about a shelter. Trent chooses to believe in the power of family. Trent is investing in the family because he trusts his family will invest in him. It is called faith.

    This is not something I would personally do because my family wouldn’t be able to help when help was needed. This is really no different than a Christian believing that god will provide when needed and giving a gift to the church every week. Those of you who are reading into Trent should first look at themselves. We tend to believe others are doing what we would do. If you think this is a scam, then maybe you are looking at it with the wrong eyes.

  80. Trent, thank you for taking the time to explain yourself in the comments.

    I still don’t agree with your stance, though.

    And as for the recent comments about this being an act of faith…totally different thing.

    If Uncle Phil really is a trusted family member, wouldn’t he help the child, gift or no gift? If he would help without the gift, there’s no reason to give him the “gift”. If he wouldn’t, then it’s a bad decision to try and “buy” his love and support by giving him a gift.

  81. @Trent,

    From a comment..
    “You are choosing, yourself, to mentally add such an agreement to the equation. I’m saying there’s truly nothing there. Phil can do whatever he pleases.”

    From the mailbag article..
    “There are a lot of risks in doing this. You’re relying on the idea that Uncle Phil is good with money and not prone to blowing that money that you give him. You’re choosing to believe that some day Uncle Phil will choose to help you with college. You’re also believing that Uncle Phil will live that long, because if he dies, that money will be folded into his estate.”

    Wow, just wow. Not sure how those two statements are supposed to stand together as meaning the same thing. I guess we all have very vivid imaginations.

    @Patrick,

    “This is not something I would personally do because my family wouldn’t be able to help when help was needed. This is really no different than a Christian believing that god will provide when needed and giving a gift to the church every week.”

    There is a huge difference between giving towards the ministry of God with faith that he will provide for you and giving to an relative with the faith that they will pull through for you. The scenarios are not even in the same ballpark.

  82. I thought your answer was great. This was done for me to help with the cost of my education and I’m very grateful.

    Another thing we should remember is that FAFSA is not the fairest in allocating money. My roommate from the Midwest received a huge amount of aid – her expected contribution was something like $3,000/year, based on her parents’ incomes. I’m from the east coast, so my parents’ incomes were higher which made the expected contribution higher – but so was our cost of living! She managed to make that $3,000/year on her own and left school with no loans. On the other hand, I left with $20,000 of debt. I think cheating the system is perfectly OK, because quite often the system is cheating you.

    Fortunately I have a great job (thanks, Cornell) – but I’m still pissed off about the unfairness of FAFSA and how they don’t take into account the cost of living in your area.

  83. You either believe in your family or you don’t? I don’t have a faith in god but believe in my family? YMMV.

  84. I was also going to bring up the comparison to tithing. That’s basically what the proposal has evolved into as Trent clarified it over time; the only difference is the group involved (tithing:congregation :: “uncle phil’ing”:family). It’s based on the premise that you share everything you have with a group, and they share everything they have with you. The way trust comes in is because everyone in the group has to be playing by the same rules; if part of the group is taking but not giving then the system breaks down.

    It would seem a little less condescending if it was phrased “not everyone is part of such a community.” Instead of all this stuff about “trust” and even insulting statements about “something within you that isn’t there.” Ouch.

  85. “Trent is investing in the family because he trusts his family will invest in him.”

    Bingo. You either believe it or you don’t.

  86. “Trent is investing in the family because he trusts his family will invest in him.”

    Bingo. You either believe it or you don’t.”

    But that is sooo not what the original post was about. It was about giving the money away to hide it from the financial aid people, then getting it back later. It only became about trust and family after people pointed out how unethical that was.

  87. Trent,
    Bottom line here is that you should probably advise people with what everyone else would do and not what you yourself would do. People are making assumptions that your family wouldn’t help you unless you made the gift, which I don’t remember reading in your article. They are assuming that is what you are saying.

    I hear what you are saying. You would give the gift to help out SOMEONE, whom you trust and whom needs it, KNOWING that they or SOMEONE in your family will be there when you need it because that is the nucleus of YOUR family. Again, I don’t have that ability with my family. I’m in a better situation than most of them so they probably wouldn’t be able to help.

    I think they are being distracted by that message because you mention that, to paraphrase, “oh and btw, this won’t hurt for loan applications because it’s gifted”.

    While others think it is unethical, I think that it really depends. If that amount is not large enough to help with college, but large enough to HURT your chances to get loans (which I’ve seen), I don’t think it’s unethical.

    I personally have a friend who’s daughter couldn’t get a financial loan, for college, because she lived with her mother, who made to much money. The mother is over her head with a mortgage that she assumed from her parents and now can’t give anything to help her daughter but free room. The daughter is an adult. Why should it be assumed a parent’s income will be passed on to the child? The requirements are broad and doesn’t suit many situations. I get what you are saying about playing on the same field as others. Some people need just a little helping hand but can’t get it because the “loopholes” say they make to much.

  88. @Patrick

    Trent is not basing the gift on which family member needs it though. He doesn’t say “Find a relative who needs the money and give it to them to help them.”

    He says the money could, in theory, be spent on bubble gum.

  89. comment #89. I think that is because Trent originally didn’t word it the way it was in his head, which he’s pointed out several times.

    I’m amazed how many times Trent has explained himself with the words “I didn’t write this the way I meant to” and someone comes back and says “but that’s not the way you worded it in the original”.

  90. Dee – Even if he said “Find someone who needs the money”, it could still, in theory, be spent on bubble gum. The point is “I would give it to someone I trust (which expanded to) to do something responsible (which expanded to) with no strings attached and no expectations”. Trent believes that person would help when help is needed (but notes they don’t have to). It is everyone else that is reading “if I scratch my back, you can scratch mine, so I can get around these pesky requirements to scam money away from college loans”.

  91. Typo corrected.

    It is everyone else that is reading “if I scratch your back, you can scratch mine, so I can get around these pesky requirements to scam money away from college loans”.

  92. @Patrick.

    Ok. That makes sense.

    I just understand the logic behind giving away your child’s money when you don’t expect anything in return. That’s what makes Trent’s responses seem disingenuous because it doesn’t make much sense.

    How does giving away money get your child any closer to paying for college? If you say, because it lowers the amount of assets claimed on your FAFSA…then that is gaming the system and I think that’s what a lot of people feel is unethical.

    If that is not the intent, then it’s completely irresponsible to throw away money that was in hand.

  93. Dee – Which is why Trent said it is what he would do and it is because he has a different world view. He’s realized that he has a different view of things and has said so.

    Granted. I think Trent’s original post blew it badly. I think that because the questioner said ” am told this money shouldn’t be in their names when they are applying for college financial aid, but I am unsure what to do with it.”

    The explanation to that made sense to me. Be charitable and those you trust to be charitable back will help you when you need it.

    The question I have is, what amount of money are we talking here? If it’s not enough to really help with college, but it could hurt financial aid, I agree completely with Trent. If, however, it is enough to make a dent in college, but it in a fund or a CD or something. It will only help more later. I think this has all come out badly.

  94. I agree with Dee. I’ve actually really enjoyed reading all these comments about helping out family members and whatnot, I guess I too just don’t get why this all came about as an answer to a question of how can I best help my kids pay for college/get value out of an inheritance that was left to them to pay for college. I think part of the problem is that the original answer, and this discussion, has wandered so far afield of the original starting point that it’s… I don’t even know what to call it.

    As Dee said, how does advising someone to give away a college nest egg help anyone pay for college? Even if Uncle Jim gives our fictional student free room and board in four years or free land in forty, that doesn’t help the kid come up with money to pay tuition. That money, it seems to be implied, will come from either the government, as a handout, or as personal loans and a debt burden. This advice is not something I imagine most people would have very much interest in following.

  95. Patrick (and several others in this thread): thank you. You were able to get across something that I was having difficulty getting across, probably because I botched my original comment so badly and was thus trapped in a cycle of saying, “That’s not what I meant.” So, thank you, truly.

  96. I do have a question I would like added to a future mailbag. If you’re not already part of such a family/church/community/etc, how might you go about becoming part of one?

  97. My response to the original should have been as follows:

    “I am a firm believer in charity, especially within my own family. If you have a small amount of money that’s just sitting in a savings account and you’re concerned about it affecting financial aid, use it for family charity. Give it to someone in your family that could really use it right now – all it’s doing for you at the moment is sitting in a savings account collecting a tiny amount of interest and probably hurting your financial aid case. When the time comes, the family goodwill you’ve built up will pay more dividends than your kids can imagine, because charity begats charity.”

    My original response was horribly botched because I was trying to answer the question in a very narrow fashion – too narrow – in order to get the point across. That made it appear as though I were suggesting a contract, which wasn’t what I was saying at all.

  98. “If you’re not already part of such a family/church/community/etc, how might you go about becoming part of one?”

    Wow, that’s a great one. That should be a post all its own.

  99. Trent – I think comment 102 is perfect. If you are truly worried about it hurting financial aid (and you aren’t trying to figure out a way to shelter it), Trent’s suggestion fits.

  100. ok. here’s my question. If this whole family trust/good investment thing is such a grand idea seperate from college education and the fafsa, then why was this never posited as an idea for retirement money?

    Is it because you don’t need to report how much retirement savings you have to start collecting social security?

    Or is it just because you never thought to mention it anymore.

    Basically, if your whole idea is exactly what you say it is then why was it brought up specifically in a question about what to do with money given to you for future education costs?

    Are you personally going to stop investing into your children’s 529 plans and instead give this money to relatives?

    (I’m not attacking you trent, not at all, I’m simply trying to give you the devil’s advocate position so that you can try to understand why people aren’t accepting your responses)

  101. For me the issue has nothing to do with whether or not you trust your family members. The issue is that you are hiding money from a government agency for your own personal gain, at the detriment of others who may not have family they can count on like you do. The government is there to (for one thing) ensure that people without access to education, health, or housing can have adequate access to the necessities of life. If you are using this system for your own benefit by doing what you’re proposing, then this is in fact taking advantage of the system’s imperfections. IMO it IS YOUR responsibility and MY responsibility, not only the systems, to act in a socially responsible manner.

    So you trust your family members — that’s great. But you are being dishonest (and as one poster said, criminal) by hiding (or “gifting,” whatever you want to call it) this money. You are taking that financial aid from someone who is more needy than you are. These are the people the system was designed for, no matter how clever you are to find the loopholes, you are being dishonest and uncivil.

    I have been reading this blog for a while and am frankly surprised and slightly offended that you would suggest this kind of scheme. And yes, it is a scheme, in that it is purposefully deceiving a federal aid agency for your own personal gain. Wrap it in whatever flowery justifications you want — family love and trust — but it is STILL cheating a poor kid out of their money.

  102. While I agree that it’s good to be charitable and generous with family (there is personal value to that) I really don’t think it’s financially sound to tie family charity towards money for college.

    If one wants to be generous with family I totally understand, I think that should be something separate. I just don’t think it’s a good idea to make financial decisions based on the “charity begats charity” idea.

  103. Stephanie, there is *zero* expectation of anything being paid back. If there is anything paid back, it should be reported on the FAFSA. How is that hidden?

    I’m saying that maybe instead of just holding the money in an account for twelve years, it might be better being used for family charity.

    Chris: lots of people use their retirement savings to help their children out. My in-laws used a lot of their retirement money to help their kids and guess what? We’re going to help them when the time comes. That’s exactly what I’m talking about.

  104. yes trent, I can understand that and it’s fine. but the devil’s advocate position is that you pretty much never mentioned this until the question of what to do with college savings and get financial aid came up, making it seem as if you were suggesting a scheme as stephanie said, regardless of whether that was your intention or not. It looked and will continue to look that way to some people no matter what you say.

  105. #102 is much better than the original and I applaud you for taking the time to write that.

    I still disagree with your rationale, but I believe I understand where you’re coming from now.

  106. Um, you said, and I quote,

    “Should that be reported on the FAFSA? I think it’s ridiculous to think so.”

  107. as someone from an abusive family, i really appreciate the clarification. i WISH i could trust my family. i WISH i could feel safe with them. instead, i have a mother who tried to kill me when i refused to cosign on her second mortgage and guilt-tripped me into paying for everything while telling me nothing i did was ever good enough for her. if you do have a family you can trust, that is priceless. thank goodness i at least have good friends.

  108. Stephanie – Trent never said anything about hiding this money to take advantage of the FAFSA. Everyone else did. The original poster commented that they heard that having the money in a child’s name is a bad thing to do (for the FAFSA requirement), not Trent. I think everyone is reading in their own response for Trent.

    Personally, I don’t think the “government is there to (for one thing) ensure that people without access to education, health, or housing can have adequate access to the necessities of life.” They do every thing pretty poorly, so why would anyone want them to attempt charity?

  109. Trent,
    Regarding your post to Chris, what happens if a parent uses the money to help their children but the kids never come through? They either just don’t have enough the money or not enough to spread the wealth.

  110. But he IS hiding it if he doesn’t expect it to be reported. He is saying that his brother / sister has helped him out a lot financially over his lifetime, so he’s going to gift some money to his nieces and nephews. So there is a reciprocity, one type of aid traded for another. In his original post, this situation does not need to be claimed on the FAFSA. In other words, the gifted money is hidden.

    THEN he says in the comment above (#108) that such reciprocities should be reported.

    Which is it, Trent?

    What about the families who aren’t lucky enough to get such gifts?

  111. Also, Patrick, I hold my government to these standards. If you don’t, then they’ll never meet them. They are here for us, not the other way around.

  112. I haven’t read through all these comments. But tom, in comment 31, gives a pretty good explanation (to me) of why even what Trent’s being accused of suggesting isn’t illegal. I personally don’t even see that it’s immoral.

    And Stephanie, I think it’s pretty clear that Trent is saying that if you give the money to a relative, you don’t have to report it because it’s not in your possession, but that when he returns the money you have to report it as income or assets held on your FAFSA.

    I can be pretty self-righteous myself, but this outcry is just silly. If you people knew half the things tax attorneys do on behalf of wealthy clients, things that are totally legal, you’d laugh at this debate.

  113. I think there is another problem here. Does a parent have a right to give away a child’s inheritance? If the money has been gifted to the child can or should a parent give it to someone else? Trent said that he would give it with no expectation of repayment. How would your child feel if the deal went south and mom and dad gave away a portion of their college savings and it was never returned or the person passed away and the money disappeared forever. How would the relationship with the family members change if the person who received the money used it on something else and then could not return the money, as is basically implied by the giving away of the CHILD’s money. Let’s face it this is a gift with strings attached, maybe not in a way that can have binding legal repayment requirements, but definitely in spirit. I see a family meltdown over a scheme like this! Please don’t insult us by saying that it is a goodwill gift and nothing more. This is a child’s college fund we’re talking about…of course you expect the money back!

  114. Imelda, the original mailbag question was about what to do with gifted money when applying for financial aid. Trent’s response was not “report the money on the FAFSA.” He was advocating a way to avoid reporting it.

    If I’ve misunderstood, then I’m sorry. But I do not in any way see how “it’s pretty clear” that he did not intend to hide this money.

  115. “But he IS hiding it if he doesn’t expect it to be reported. He is saying that his brother / sister has helped him out a lot financially over his lifetime, so he’s going to gift some money to his nieces and nephews. So there is a reciprocity, one type of aid traded for another. In his original post, this situation does not need to be claimed on the FAFSA. In other words, the gifted money is hidden.

    THEN he says in the comment above (#108) that such reciprocities should be reported.

    Which is it, Trent?”

    If I gift such money to my nieces and nephews, it should be reported on the FAFSA. I reported all financial gifts and aid I received on my FAFSA. I’m under no obligation to gift them a dime, but if I choose to, they should report it.

    You’re looking for a contradiction that isn’t there.

  116. Not to beat a dead horse here, but…

    Trent said he agreed with post #31, which states:

    “…4) The money will be gifted back to Trent’s kid from Uncle Jim when he goes off to college. Only if Uncle Jim wants to.

    5) None of these transactions need to be reported on FAFSA (it’s not your money afterall).”

    See why there is reason for confusion here, Trent?

  117. “Um, you said, and I quote,

    “Should that be reported on the FAFSA? I think it’s ridiculous to think so.””

    That’s 100% correct. If I give a gift of $5,000 to Uncle Bob, I don’t have to report that on my FAFSA. The entire conversation was about *gifted money*. I only have to report gifts given to me, not ones that I give.

  118. Stephanie, “Only if Uncle Jim wants to.”

    If that money is gifted, then it needs to be reported. But you don’t have to report a gift until it’s given. You can’t fill out your FAFSA based on gifts you think you might get – you have to fill it out based on what you actually receive.

  119. OK, thanks for clearing that up. It wasn’t clear before, at least not to me.

    Though I still don’t understand the point of your original post to the mailbag question — I would hope financial aid agencies would need to be made aware of any tuition support, housing, etc that wasn’t originally claimed, even if it’s not cash.

    But maybe things are just different in the U.S.

  120. “What about the families who aren’t lucky enough to get such gifts?”

    That’s one of the big problems with how higher education works today and it’s far outside my ability to solve it. My opinion is that higher education should be 100% merit based. Each school admits a certain percentage of their incoming class – the ones with the most merit – with completely free tuition, room, and board. The rest of the class is responsible for their own, via any grants or loans they can get. Independent scholarships could target low-income students who meet the admission criteria, but fail to meet the “free” criteria. This would eliminate the need for the FAFSA or any of this other silliness, and gives students with merit a huge runway on which to succeed.

  121. If you give money and expect something back, be it money, or loyalty or favors, that’s a loan. That can be foolish.

    If you give money and don’t expect anything back, that’s a gift. There’s nothing foolish about it. There is nothing at all to criticize about it. It’s a natural thing. IMHO, people only get confused when you talk about “trust.” That implies you expect something. Otherwise, why not give money to people you don’t trust?

    To me the answer lies in what you are trusting them for. When I give money (or time) I trust that the money will do the person some good. I don’t trust that they will be beholden to me. And I know that if they are on hard times and I am not, odds are they won’t be coming to my rescue later. And I know that some people who are always in need are just plain needy and may not even make a good friend. But if I have the cash to spare, and it doesn’t deprive anyone else or cause any harm, I only need to trust that they do need it.

    I missed the post in question where you advised someone to give away money — so there may be circumstances that I don’t know about here. But the thing is, giving makes the world a better place. And that does come back at you. You build something. Eventually you build a lot.

  122. Well, this section has got interesting. Obviously I dont agree with using uncle phil as a shelter.
    But I kind of understand where Trent is coming from on the trust thing. When I was younger I was going thru a rough patch and my aunt took me into her house and supported me for probably a good year.

    About ten years later, I was in a much better financial situation, and she called me because she needed help to get a car. She was asking me for a monetary loan. I had no problem giving it to her. She said she would pay me back eventually but I said don’t worry about it. Consider it rent or whatever for taking me in when I needed help.

    This is a good example of giving, not expecting anything back, and then being repaid down the road. And not even expecting that either.
    If Im not mistaken this is called good Karma. I beleive that is what Trent is getting at.

    otherwise i certainly dont agree with giving away 10k that would be ultimately used for your childs education.

    but karma will get u everytime, whether good or bad. thanks for the great blog trent

  123. PS for the record, in the context of the mailbag financial question, I still think this is really bad advice. If you’re advocating helping out family, I’m all for it, but this kind of thing — giving away money that’s intended for a kid’s college fund and expecting not to claim it on FAFSA unless it’s returned at just the right time, in the form of cash — is totally irresponsible, on so many levels.

    I guess this is where your fine print comes in — “This site is for entertainment purposes only.”

    I guess I’ve been entertained for the day! ;)

  124. “expecting not to claim it on FAFSA unless it’s returned at just the right time”

    Again, I’ll repeat: if you receive a gift for college education at any time, you should note it on your FAFSA.

  125. So if the money is gifted for tuition in my final year of college, I can still claim it with the financial aid agency?

  126. It’s clear to me that Trent was merely demonstrating the value of having a giving nature and being surrounded by people you trust. He was also selfless enough to admit that his particular situation does not necessarily apply to everyone.

    He is not advocating “throwing your money into the wind” or doing anything unethical with it. I don’t understand why people have to get so upset over a “suggestion”.

  127. @Trent,

    “When the time comes, the family goodwill you’ve built up will pay more dividends than your kids can imagine, because charity begats charity.”

    Whatever happened to family goodwill and charity simply for the sake of charity? Statements like the one above are why so many people are crying foul about expecting something in return. You say that you expect nothing in return, but in the next breath you believe that charity will return charity. That alone leads us to believe that you genuinely expect something in return down the road after you have been kind to someone, like returning a favor. People are becoming confused because the two statements contradict each other.

  128. Mercy, what a thread. I’ve been through this one and the original thread a couple of times now, trying to wrap my head around it all. A three-hour tour that has landed you, Gilligan-style, pretty far from where you started.

    Trent, at one point you said, “The system rewards you if your family can’t manage money, and punishes you if they can. That’s a loophole if I ever saw one – ‘we’ll give you *more* money if you show your willingness to take cash and throw it out the window.’”

    You do know, of course, that lots of poor families manage money very well. They just don’t make very much of it. What a family does with its cash after its earned isn’t a huge factor on the FAFSA at low income levels, simply because it’s all used up on things like shelter and food. Windfalls are spoken for long before they have to wonder whether Uncle Phil will repay their generosity.

    As I said in my earlier comment, I’ve worked a long time with students and families at very low income levels. I haven’t surveyed them on this point, but I doubt any would regard a Pell Grant and a subsidized Stafford Loan as a reward for their poverty. In fact, most show a great deal of gratitude for the opportunity to send a kid to college, and more than once I’ve heard a parent say that they hope their kid’s college degree will make such handouts unnecessary for their grandchild.

    I’m not entirely sure what to make of your notion that high-performing students should get a free ride, regardless of income. I think it places far too much emphasis on how a student performs in high school, since it doesn’t take into account the huge head start gained by a select group of students.

    By that, I mean kids from families with highly competent, well-educated, affluent parents. If you don’t think that’s an advantage, you should have been their when I visited the home of a struggling 7th grader, whose single-parent mom usually didn’t get home from work until after 10. There were no books–no tv, either–, and there was no desk, and no kitchen table, and two working lightbulbs. That’s where he tried to get homework done every night. You’re telling me that the playing field was level, when I grew up in a university town with a great high school, and my college-educated parents were home every night, and there were several desks, scores of books, and lots of nice, bright lights? Telling him that under your system he and I would have the same opportunity to go to college free would be obscene.

    Apologies for the long, late comment. I know you’re tired of this topic. Don’t beat yourself up, or get too defensive, or regret posting and commenting. At a minimum, your posts today and yesterday have given everyone a great deal to think about. Keep it up.

  129. Hi Trent,

    I’ve really enjoyed your blog for the last few weeks that I’ve been reading it. Regardless of the content of this particular discussion, it is clear that you are very invested in convincing people that your perspective is valid and correct. In my opinion that this weakens your voice. Regardless of how strongly you feel on an issue, there will always be people who disagree with you or misinterpret what you say.

    I personally disagree with the advice you provided on a number of levels, but I won’t get into that (much has already been said) because it detracts from my point here. I don’t actually want to get into an argument with you.

    There is a reason that formal debates are structured so that opposing sides take turns. When you present a clear cut position in a blog entry, your readers are able to grasp your full perspective and the depth of your argument, whether they agree with it or not. When you respond contrarily to individual posts, the coherence of your voice is lost. The only way I could grasp your full argument at this point is by reading through the enormous list of responses, and that is something very few people will be willing to do.

    On the other hand, I do think that interacting with your readers is a very good thing. I’d almost suggest that the reader mailbag be given its own section of the site and possibly not be included as a post in the main blog. If you had a forum (what a great idea!) you could respond to questions in a more conversational setting without distracting the rest of your readers. This conversation is great for those who really want to get to know you better, but for others who read your blog for your strength of voice and clarity of perspective, this sort of bickering is painful.

    ~Scott

    P.S. I really like your blog! Don’t let this get you down!

  130. I just wanted to offer my encouragement.

    I wouldn’t even want to begin to count the number of articles I’ve read on this site that I felt to be of enormous value. You’re doing a great service to a great many people.

    Discussion, if used to explore various viewpoints and further ideas, is a useful tool. However, after reading the thread, it appears that many commenters are not so intent on discussion as they are on imposing their presupposed intellectual and moral superiority upon your decisions. Admitting you’re wrong is not enough these days- they’ll only be satisfied once you adopt their viewpoint on every issue, quit blogging, and never attempt to succeed again. Don’t let these people influence your decisions.

    For those who have an earnest disagreement with this post: keep in mind that this is merely one post on one website. The fate of the world does not hinge on the outcome of this discussion. You may think and feel however you wish; Trent has the same right. To Trent: those who are so offended that they would never return to this site are probably readers you are better off without.

    Keep up the good work.

  131. I hope you don’t let yourself become discouraged by the brouhaha. Everyone makes mistakes. I am glad that you have opened it up for discussion and admitted your error, even though I think you are wrong to turn this into a discussion about family trust – to me this is a red herring. After all, it isn’t your money to give – you are to hold it in trust for your child. Even if Uncle Jim fully intends on either regifting the money or contributing to your kid’s education in some other way, if something happens to him that prevents this, your kids are hooped! It’s not at all about trust, just acknowledging that bad things happen to good people.

  132. Hey Trent, it seems to me like you’re getting a lot of negative feedback on this post, so I thought I’d offer you my perspective.

    I’m a high school senior, and I got into my dream college, Johns Hopkins. I come from a struggling middle class family, and when I filled out the FAFSA forms online, it said my expected family contribution would be in the realm of $13,000. However, the award I received from JHU would make me pay $20,000 a year. As things stand, I doubt my family could reasonably pay more than $4000. If I were to choose to go there, I would have to put myself in serious debt, which I do not want to do. So right now, I feel pretty screwed. And even if I were to do something unethical, which I by no means would advocate, I don’t think that I’m going to lose any sleep about the big name universities and the federal government getting short-changed, I don’t exactly see them as a victim. (And although this is an assumption, I think it’s pretty safe to assume that most of your readers are financially well-off, so money doesn’t cloud their vision of “ethics” to the extent that it does people just trying to survive.)

    Now from a completely morally justifiable point, here’s how I think you envision the conversation going down.

    Parent 1: Uncle Phil, my son currently has $10,000 in a college fund. Since I feel that that money would be retracted from his college financial aid package, I’d like to give this money to you, and you can spend it however you want.
    Uncle Phil: Are you sure Julie?
    Julie (Parent 1): Absolutely. I couldn’t think of anyone I would rather give the money to.
    Uncle Phil: Wow. Thanks Julie, I don’t know how I’ll ever be able to repay you for this.

    Fast-Forward 10 Years….
    Julie’s son just graduated from school with $8,000 worth of debt. Uncle Phil, remembering Julie’s gift, decides to pay off the loans.

    Since Uncle Phil did this of his own volition and there was no expectation for him to do so, nothing unethical is done, and thereby a relationship built on mutual trust once again proved fruitful. Karma’s funny like that.

  133. Trent, as you know, I have complemented you on several of your articles.

    However, this one is horrible.

    Its contradictory to what a lot of financial advisors would say. Its contradictory to what Suzy Orman would say. (I know, your not Suzy Orman.) Sorry Trent, but this one was very lousy but I still love reading all your other stuff.

  134. Every time I go back and read the original question “… I am told this money shouldn’t be in their names when they are applying for college financial aid, but I am unsure what to do with it. Suggestions?” and the original answer “Here’s one way you could do it if you have someone you trust, like an uncle. Each year, have your child give a gift to someone else that’s under the gift tax exclusion. So, for example, each child could give $10,000 to this person that you trust. Then, when your child is in college, that trusted person could give a gift back to your child.”, I get that quid pro quo feeling.

    The crux of the matter is context. Quid pro quo among family members to help each other anytime is OK. Quid pro quo among family members with the intent to hide assets on the financial aid application is not. And the question was asked in the context of maximizing financial aid, as in “… this money shouldn’t be in their names when they are applying for college financial aid …”, not family helping family. Sorry, this kite won’t fly.

    Overall, a fine blog.

  135. “I’ve heard a parent say that they hope their kid’s college degree will make such handouts unnecessary for their grandchild.”
    I received some grants for my college education, and I fully expect my children to qualify for nothing. I expect to save as much as I can for them. This is the way it should be, perhaps.

    While some aid should be partially merit based, there is a lot of “cultural”/”Social” capital that contributes to obtaining such “merit based” aid. Based on my ACT scores, I could have received 100% tuition/room and board at the state school I went to. Because neither my parents nor guidance counselor knew about this until it was too late (until I discovered it online, actually) I did not and had student loans to put me through, even with the aid.

    Trust me, my kids will know about ANYTHING they are eligible for. Because I’ll know. Because I’ve been there.

    Trent, sorry to be one of the ones to attack you for your position. I respect you, but your defensiveness and need to justify everything you say, your need to be right…. it eats at me, if only because it is things about myself that I dislike. I think on this point you are wrong (or at least, misspoke your position, (comment 102 seems just fine), but as you know, your blog has much value, despite a few misfires, and I hope this discussion has inspired you.

  136. I’m a big believer in the idea that you never loan money that you’d miss dearly if you never got it back — especially to friends and family members.

    I have a few friends that I exchange small favors with. Usually it’s just to make paying the restaurant bill easier by saying, “I’ll get this, you get the next one.” It doesn’t take long to figure out who’s good for it and who isn’t — and sometimes that keeps me from trusting certain people with larger amounts.

    There are a few people that I’d be willing to entrust larger amounts to because I know they would help me out if it came down to it, but those people are the least likely to accept money from me anyhow.

  137. Hi Trent. I’ve been reading and enjoying your blog for several months now. I appreciate your commitment to your readers. I don’t think you need to admit that you are “wrong.” But, as Margo pointed out earlier in this thread, there is at least one more camp of people who honestly understand what you’re trying to say, but feel differently. I think it’s a good reminder for everyone to be respectful and open to hearing different opinions. We don’t need to attack each other. We’re all trying to do the right thing and mean well.

    I really liked how you explained your thoughts in comment #102. My parents use money to fortify their relationships among the relatives by actively lending and gifting. And it’s worked, because we’ve definitely been repaid in various ways when we needed help. Money can be a huge symbol of trust.

    However, I personally would not use my own money like this. It’s not a matter of who is right or wrong, or whether or not I trust my family. I just have a different attitude towards money. I would be happy to gift it to others if I had a surplus, but in general, I would keep and use what I needed to take care of myself first and foremost. I need to be secure and stable before I can help anyone else out. My family and I help each other, but under the assumption that each of us are primarily responsible for our own wellbeing.

    Personally, I think a child’s college savings counts as money we need for ourselves and is not a surplus open to gifting. If a relative happens to be in dire financial need, of course I would try to help out in some way, but I would not casually hand over this lump sum. In fact I would try to help in other ways that don’t involve simply handing over money first. That way, we can still help, and maybe this relative will do something nice for us later, but either way, the child’s college savings remains safe.

    You see, I think a lot of us understand and sympathize with how important family trust and relationships are, but we can simply disagree on how money factors into this. I’m glad you place such a huge emphasis on family trust. It’s something that is important to you and it’s good that you are really clear about this so readers know that about you. Even if I may disagree with your advice at times, I know that what you are saying is coming from a good place and I do trust that.

    I would like to second Scott’s suggestion to put the mailbag section in a separate place. I found myself sucked into this conversation, and while interesting and full of good points, was mostly long uncomfortable bickering that needed a better forum.

  138. Giving away money is a slippery slope. A lot of famous athletes spend all their money and are broke. They help buy homes, cars, clothes for everyone. Considering you are comparing whether to use cloth or disposable diapers, and that you buy stuff in bulk from Amazon, I don’t think you have money coming out of your ears. Giving away money can sometimes have the opposite effect of what you are trying to accomplish. If a person knows they don’t have to work hard to get money, they may lose the drive and motivation to pursue certain careers.

  139. Well, if you trust people will help you, friends, relatives, whatever – you’re a fool. Cash money, and prayer, are all you have

  140. I am a relatively new reader and I really like the blog. My thoughts on the issues are as follows:

    1. I read yesterday’s article and it was pretty clear to me that the ideas put forth was to shelter money, from the “giving” of money to that trusted uncle or to throwing it into the safety deposit box. After reading the article I came away with that notion. I’m not saying I disagree with you….I’m just saying what I came away with.

    2. On a side note, I think its important to seperate trust and love. I love my family but their are certain members that I can’t trust that they will “do the right thing” with money. Your blog highlights the fact that many people who struggle financially have ended up their due to bad choices. Giving money to people who make bad choices isn’t going to fix the problem. It may get them out of a pinch but the core issues are still left behind.

    3. In regards to the ethics of financing your childs education, is it better to “NOT SAVE AT ALL??” In the current system, if you are responsible and work hard and save for college you are penalized by the government. So why save?? Your thoughts??

  141. With respect to the above article about trust and money, it is true that your perceptions are altered by what’s happened to you. My wife let a friend use her Visa to rent a truck. The woman had an accident with the rental truck, guess who paid for the damages and ended up paying for the rental (also guess who also moved to another state very shortly after)? I once lent money to a friend, it’s never been paid back because he fell on such hard times soon after that despite the written agreement to pay it back I wrote it off as a loss (and we are still friends). Such things have certainly tempered my thoughts on lending money out. I much prefer using alternate ways to help, (e.g. providing rides to work, letting people crash at my home for a week or so until they set up new living arrangements, etc.) all of which includes some risk and effort, but doesn’t hit so hard finacially. It’s amazing how quickly you can determine someone’s sincerity if you offer to help them look for a job rather than just give them a couple hundred to tide them over for the next week or two.

    My other concern about giving money is that pretty soon, if you’re not careful, people come to expect it from you and become downright indignant when you refuse. After all, why can’t you help cousin Sue with a couple grand, you’ve helped her two times already and they were counting on you? And how can you give cousin Phil money, but you can’t help your own brother when I’m down? Frankly, I think Trent is in a pretty unique situation if people aren’t constantly hitting him up for funds and trying to guilt trip him when he refuses.

  142. The edited advice that was given in the reader mailbag still seems strange. They asked what to do with money that could help them with college in the future and the advice was to basically give it away to a family member and that charity begets charity.

    Perhaps you should write a brand blog entry answering the question again and give clear advice on what to do with the money in a clearly legal and ethical way. Or give two answers if the best financial way is not the ethical way and let the readers decide what to do.

  143. I have to say that I completely agreed with the post from yesterday. The government has given us laws that regulate how we use our money, and I believe that ANYTHING that is legal is a valid strategy until such time as it is no longer legal.

  144. On the issue of trust, the grandparents entrusted the parents with an inheritance for their grandchildren to be used for their benefit. If they wanted it given elsewhere that is what they would have done. Their wishes in the matter are clear. The children are trusting that their parents will handle the money properly, making it grow, and using it for their benefit at the proper time. Any other use of this money is certainly immoral and quite likely of questionable legality. Nobody should be giving away money which does not belong to them.

    The parents were not asking advice on giving money away, but how best to preserve the funds and maximize the benefit for their children.

    Trent, I cannot imagine that one day you would sit down with your wife and say, Hey, let’s liquidate the kids’ college funds and give it all away.

    I found out the hard way that a very effective method of working the FAFSA system is to become a single parent. It is quite peculiar that in a divorce situation the custodial parent’s income is the only one counted (at that time). So here’s the plan: File for divorce about a year prior to the FAFSA deadline. The noncustodial parent takes all the money, the custodial parent takes all the kids. If possible have several kids going to college at the same time. I managed to have 3 at the same time for a couple of years. I found this to be a quite effective method for maximizing financial aid. ;) Not really fun though.

  145. Since the whole financial aid system is totally messed up anyway, I think that knowing how to “play within the rules” is important. I didn’t, but many of my classmates in college had much more helpful families who did. Many of them were in better financial shape than my family was but they got financial aid and I didn’t.

    It’s a complex issue. Do you work with a flawed system and take the same advantages as everyone else or do you put yourself at a disadvantage and be ‘completely’ honest? If the system allows you to do it, shouldn’t you take advantage of it? I didn’t have the option but if I did what decision would I have made? I don’t know… and at least that is honest.

    And before y’all get too self-righteous, maybe you should ask yourself the same question. I’m betting you aren’t all so black and white in all your decisions that you can say yes or no, one way or the other.

  146. Trent, I take issue with using “trust” as a keyword. In the follow-up, you say “To me, personal trust and personal relationships like these are more valuable than money,” and you imply that that’s the crux of the disagreement (“Quite often, I assume the same kinds of dynamics in other families and friendships – and I did so to my own detriment earlier”) … so people who disagree with you don’t trust each other and don’t think money is more important than relationships. That’s pretty insulting.

    The particular type of “trust” you’re talking about here is some degree of pooling finances. Many people don’t do that with extended family, except perhaps on an emergency basis. Doesn’t mean they don’t trust each other.

  147. Your answer to the mailbag question would have made sense if the questioner was asking what to do with excess money, and should she help out a troubled family member. But she wasn’t. She was asking for a way to hide money that was intended for college. Your answer encouraged her to hide the money, gave her a way of making it legal, cloaked it in the honourable guise of family charity. Given the context of her question, your response was irresponsible and, as one other commenter said, disingenuous.

    I think your advice is usually quite sound, but you’ve clearly lost a lot of credibility on this one, at least in my books. I do enjoy your blog, so I’m hoping you’ll keep it up. But please, think twice sometimes about what you’re saying. It’s OK to admit you’re wrong without all this irrelevant rationalization. Think about it. This person writing to you for advice is not part of your family — you are essentially telling a stranger to give her kid’s college money away in hopes of getting it back one day and getting more financial aid from the government. How can you not see how irresponsible this is? You waver back and forth between expecting the money back in some form, and not expecting it back, ever. If this woman gives her children’s college money away and never gets it back, how is this helpful for her, her family, or her children?

    How is it helping the financial aid system, and the poorer kids who want to go to school? You talk a good talk about charity, and I understand that it should begin at home, but you’re certainly not thinking about those disadvantaged kids when you try to come up with this kind of plan. You are not acting in a charitable way — I see this plan as completely selfish. I do not see the difference between “charity begets charity” and “tit for tat.” If you want to give to a needy family member, that’s one thing. But in the context of the mailbag question, it’s something completely different, and you know it.

    This is the last comment from me on this subject, but I still feel quite strongly about this one, Trent. It’s all been said above, but I still feel like you’re missing the point. It’s only because I genuinely like this blog (usually) that I’m trying to get you to see the other side to this.

  148. Two part comment:
    1) The parents should take the time now to fill out a Fasfa worksheet or calculator:
    http://www.fafsa.ed.gov/fafsaws89bw.pdf
    this way they’ll have a clear picture. Based on my understanding of reporting requirements and expected contribution I would suggest they sock that money into an IRA or use it to pay for school (or how about that educational trip?)

    This loan site http://usefc.madtek.com/index.php?option=com_content&task=view&id=115&Itemid=217
    puts the student’s expected contribution from savings at 35%, which still leaves them the other 6,500 to use for incidentals during the school year.

    2) On the more interesting subject of giving and trust I really enjoyed SG’s story (comment# 6). 0% loans are a great way to help a buddy out.

    I do feel that because we are ‘all in this together’ their is an _obligation_ for responsible giving. Of course giving time is often the most effective method.

  149. I am interested to know why you did not include talking to a lawyer in your advice? You always seem so cautious about seeking advice from experts. It seemed clear to me that the question came from a reader who clearly intended to use the funds for her child’s college education.

  150. The point you make is exactly why I stress when I’m advising other computer consultants about their businesses the importance of personal relationships and personal trust when starting a services business (or any business for that matter!). When clients that you have know that you are doing something for them because you trust, like and feel you know them and thus want to solve their problems and help them from a business perspective, they are more likely to know, like and trust YOU. And this “know, like and trust” is essential to building credibility and real relationships with people that are going to last. I think that definitely thus goes for both personal relationships AND professional relationships.

  151. Hi Trent,
    I’ve been a reader for quite a while, so, on the basis of what I’ve learned about you from your past writing, I’m more than willing to give you the benefit of the doubt and accept your explanation regarding trust. However, I think there’s a reason that many people are unable to accept this, which has only been raised by a few of the more recent commentors. The problem is that both your original response and clarification don’t really seem to be answering the question intended by the person who e-mailed you. I believe you were trying to answer the question: “How should I best use some money recieved as a gift? Should I save it for my child’s college fund?” But, most of the dissentors, myself included, read the question as: “Given that I have some money that was a gift from the grandparents to benefit their grandchildren and that I intend to use that money to fund the children’s educations, how best should I handle that money, especially considering financial aid regulations?” In light of that, it seems strange for parents to give money given from grandparent to grandchild away to another member of the family. Furthermore, if this is how we interpret the question, your answer didn’t really make sense to most people, because the money was already purposed for college education. If the money was purposed this way and you give it to another member of the family, even under your assumption of trust (which I find admiriable), you are either:
    A) Sheltering money (unethical)
    B) Giving away money you need (foolish)
    Consider: would you give away money you saved for the purpose of your children’s education (assuming no specific urgent need)?

    As I said above, I believe you were responding to the first interpetation of the question, in which case your answer is reasonable, given your point of view. However, most everyone else understood the second interpretation of the question, in which case your response sounded either unethical or foolish, hence the debate. Hope that adds some clarity to the discussion. :-)

  152. Trent, thanks for clarifying your position in comment #102. That answer makes a lot more sense to me and doesn’t seem unethical in intent nor illegal. Sadly though I don’t think most people can trust their families with money that much. Your original answer was as you said ‘botched’ and I still disagree with that advice very strongly on ethical and legal grounds. But I do thank you for sticking it out here in the comments and doing your best to explain things.

    Related to this topic I’ve been doing some looking on the web and found this resource :
    http://www.finaid.org/fafsa/maximize.phtml
    They have lots of tips there on maximizing your financial aid.

    Simply making sure the money is in the parents name rather than the child would help a lot towards financial aid. Parents are expected to contribute 6% of their assets and children are expected to spend 35% of theirs. It seems simply having the money in a CD in the parents naem “in trust for” the child or using a 529 would accomplish this. It would be a simple way to go.

    Jim

  153. @Jim,
    “Simply making sure the money is in the parents name rather than the child would help a lot towards financial aid. Parents are expected to contribute 6% of their assets and children are expected to spend 35% of theirs. It seems simply having the money in a CD in the parents naem “in trust for” the child or using a 529 would accomplish this. It would be a simple way to go.”

    I was actually surprised that this was not Trent’s answer to the question. That was the first response I thought of also after reading the question submitted. Maybe I’m missing something regarding the FAFSA, but I was just there 3 years ago.

  154. @Jon: Yes, exactly. Someone else gave good advice about putting in the parent’s IRA.

    @Gayle: I believe the PROFILE, which a lot of private universities use, does take into account the assets of the noncustodial parent. This really screws over children with a noncustodial rich parent they haven’t seen in, say, 15 years.

    @the senior going to Hopkins: Talk to Hopkins and explain your family’s situation. If your family has expenses that are not accounted for by the financial aid forms, get your parents to itemize them, and send that list in. If you can, talk about how you’re desperate to go to Hopkins, but family will make you go to state school because of the expense. Expensive, elite private universities have much more discretion about their funds.

  155. Wow. These comments make me afraid of ever writing a blog! It’s a reminder of how difficult it is to control tone in a piece of writing. Trent always sounds like a great guy to me, but I think that perhaps some of us read his tone in these posts as “my family’s nicer than your family…na-na-na-na-nahhh-na.” This probably came across as bragging, and left people feeling like he was saying, “Well, if only you had worked harder to develop trust with those around you, you’d have people to take care of you too.”

    It’s understandable that we would resent that tone, but I don’t think that’s how he intended it to come across.

  156. Disclaimer: I didn’t read all 150+ comments, so this might have been said.

    I know this advice has already been labeled “bad” and everyone has their side about whether it is ethical or not. All that aside, I think there a fundamental flaw that is NOT the topic of this whole debate:

    Why would you give away money just to have a better chance of getting back a FRACTION of that money. If I had $10k in the bank and applied for financial aid, I might get $2k in grants (this is completely feasible as this is about the situation I was in at one point in college). If I didn’t have that money, honestly, I think I would have gotten the same. If it DID make a different, maybe I would have gotten 1k more.

    I would have just gave away 10k to make 1k.

    The advice was on the specific topic of financial aid for college. I could be wrong, but from what I could tell going through the process, the income of your family makes a much bigger difference than the amount in the bank (unless you have a million dollar bank account or something), so dealing with 10k or so shouldn’t really make a big difference.

    Also — You never really re-answered the original question with “good” advice. So Betsy, here’s my suggestion: Open an investment account for each child with you as custodian. Invest in some trusty mutual funds. When FAFSA time comes around, fill out the form honestly, and if you are truly poor, the government will probably give you some help. Depending on loan rates at the time, your children can choose to take out loans and have a solid investment account when they graduate, or pay for college with this money and graduate debt free. No need to “trust” anyone or use questionable methods.

  157. “Independent scholarships could target low-income students who meet the admission criteria, but fail to meet the “free” criteria.”

    How would you identify these students? The vast majority of *students* are low income.

    It sounds like rather than eliminating FAFSA and its associated problems, you’re just calling for more merit based aid.

  158. Regarding giving money to people you “trust”.

    You quite obviously haven’t been stung hard enough in life.

    Once you are,stung real good, you’ll get over that attitude FAST!

    My giving days are over!

  159. @!wanda: I know nothing of PROFILE, so have nothing to say about it. My sons went to public universities. My situation was not quite as dire as depicted, but I hope people realized that my advice to get a divorce was entirely facetious. My X also went to the trouble of moving to Canada.

    One of my sons obtained an academic full ride to a smaller state university. He is absolutely grateful that I insisted that he use it instead of going to the world famous prestigious University just down the road from his school.

    A whole nuther subject would be choosing where to go to school.

    Another subject would be the above mentioned academic full ride which was not need based and did not require filing a FAFSA.

  160. Stepping outside the issue of if this is legal/right/ethical…I have strong concerns about trusting your family. You are incredibly lucky to have a family that you can trust to help out with things. It is just too easy for mis communications to happen.

    You give Uncle Jim some money because he is having a hard time. Now, you have student loans to pay off, but instead of helping you out, Uncle Jim sees you as a college graduate who can make more money and thus doesn’t need help. You notice this, and it starts to bother you a little. Every time Uncle Jim buys something you get a little more bitter and soon the relationship between you and Uncle Jim is torn apart.

    In my own family we had a lawsuit over a business my dad and his brother’s owned together, we trusted my uncle and he trusted us. However when it came time to divide up the (small) assets and (large) debt, he felt he was shorted and sued. It tore our entire extended family apart, and some of my aunts and uncles still won’t speak to that uncle or his family.

    Cementing relationships is a good thing, I’m not saying that it’s not, but you have to tread very carefully when you EXPECT the relationship to be rewarded in any way you can measure in dollars and cents.

  161. This is the *best* comment thread ever! My hat is off to you Trent, whether I agree with you on this point fully or not, the fact that you’ve had the courage to let all this stand is reason enough for me to offically declare your blog as the Best. I’ve been pimping your site to as many people as I can all day.
    Thank you.

  162. Trent’s advice in the the business world would be considered market fraud. It’s a form of collusion, and while it might sound legal it’s not. In the world of trading, collusion is still illegal if there’s no formal agreement, and even when a conversation never takes place. I’m not saying the financial aid offices would go after petty , they don’t, but having witnessed the financial scams many families pull, I’m disgusted by the behavior. It disgusted me in college that honest families were hurt in the financial aid process in favor of less ethical individuals who were better at sheltering money. I couldn’t understand how a classmate who grew up poor in the city got less financial aid than someone had vacation homes in sweden and norway. It’s amazing how much money trusting grandparents can shelter.

  163. My head hurts from this discussion.

    I think if Trent’s critics step back and view the whole issue instead of picking on bits and pieces to suit their current arguments everyone would be a lot happier.

    Trent has admitted a mistake when writing an article which in and of itself is more than he truly needed to do considering he has the almighty delete button at his disposal. If you note the bottom of every page (including this one) he isn’t a financial advisor, he’s simply someone who has a great blog full of useful advice that everyone here has chosen to read.

    He’s not condoning anything illegal. Again, if you take the whole situation into view you’ll see that although stated oddly (or incorrectly) at first, his advice for getting the money “out of so-and-so’s name” is to gift it (which is usually tax free to a certain dollar amount) to a family member who needs it TODAY.

    Why keep money in a child’s name when there is no reason for it to just sit there, unused, for 12 years IF there is someone in the family (whom you TRUST) who can use that money NOW. If in 12 years that money comes back in any form (Trent mentioned free room & board, sounds good to me!) then that again is a gift, not a scam.

    I’m pretty sure that any child who writes an application essay to their school of choice detailing their views on charity citing this type of transaction wouldn’t have any “Feds” knocking on their door and in fact has a nice life-lesson about how “what goes around, comes around”. (Avoid cliche’s though kids!)

    I’m actually pretty disappointed in the reactions of many in this case. With the immediate consequences of the internet it doesn’t really surprise me but I always imagined the readers of this blog to be above the typical “petty arguments” that litter the internet…. I guess not.

  164. @dong,

    This is not collusion, that’s absurd. This is perfectly legal. See my comment #31 above, it explains why.

  165. @tom
    I didn’t mean to imply it was illegal in this circumstance. It’s not. All I meant to imply was that if something akin to it took place in the business world it would be. For instance if I were to trade with a counter party today with understanding even if it were never written down or spoken of that trade would then then be be undone at later date that would be a violation of federal security regulation. It’s called a round trip trade – it’s considered market deception. I would be arrested and thrown in jail. During the California energy crisis individuals were accused and prosecuted for this even when there was no formal agreement, just trust and understanding…

  166. @Tom and others – this is not necessarily legal. IAAL and will tell you that trust has NOTHING to do with this.

    Take fraudulent conveyance as an example. A “fraudulent conveyance” is when you transfer property so that your creditors don’t get it. It is illegal. It doesn’t matter if your uncle agrees to repay or if he just keeps it in his bank account or if he spends it on meth. IT IS ILLEGAL. Your creditors can sue your uncle to get the money back. Of course, if he’s spent it on meth, they won’t collect, but they will still have a judgment because the arrangement was illegal.

    Now, doing the same thing, but instead of intending to defraud creditors, you’re intending to defraud the government for more financial aid? Still say it’s legal? Maybe, maybe not. Still think it’s ethical? Hmmm… Still believe it all comes down to “trust”? Trust has nothing to do with it.

  167. Jason,
    I think what Trent is advocating is the idea that no one should have to take out loans or forgo college altogether if they are a promising student who just can’t afford it.

    In your example, the kid from the lower income home is already at a disadvantage money wise. Under the current system, he probably couldn’t afford college anyway so there is no motivation to do well in high school. Under Trent’s proposal, a kid like that could work hard and have the same chances as all the more priveliged kids. A slacker whose parents have a lot of money has just as much chance of attending school right now as a “poor kid” who works really hard and studies to get good grades.

    I think Trent’s second post is testament to the fact that he is an honest blogger and willing to tackle the issue instead of jsut ignoring it. Whether or not it was bad advice, it is what he would do in that situation, which is all this blog claims to do. I don’t think he intended it to mean that Uncle Phil would pay for college later on, but similar to what Steven and Patrick said, this gift is an investment into a family that helps each other. The gift for college may come from Patrick, or another relative, or it may not come at all. I do, however, think it was a strange response to the question at hand.

  168. I don’t know- seemed pretty clear that the original intent was to gift money and get it back later in order to hide it. This whole personal trust gifting post seems like a weak attempt to explain that away.

  169. Wait. Isn’t it sort of unethical to fake your income so you can get financial aid — even if it IS loans and not grants? I mean, there are people out there who truly need the money WITHOUT hiding cash they currently have.

  170. I am not sure that I understand the connection between trust and gift giving. If it’s a gift then it should not be used to “enhance relationships.” That’s buying trust or love,which actually can’t be done. A gift is given and then let it go. Now a loan is an entirely different thing. There are informal, paperless loans (not a good idea with large sums) and there are contract loans. The best way to ruin a good relationship is to loan large sums of money and not put it on paper. Unless you are Mother Teresa, you know you will have a little resentment if the person becomes extremely successful and doesn’t give you a second thought. Not everybody has the same values when it comes to money. It doesn’t mean that you can’t be friends outside that sphere. Some things aren’t meant to be shared with some people. I have relatives I love dearly, but some of them will never be responsible where money is concerned. Do I help them? Yes, but I don’t expect to get it back and I don’t give more than I can afford.

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